Compliance

Anti-Money Laundering & Combating the Financing of Terrorism

The Central Bank of Bahrain views the fight against money laundering (‘AML’) and combating the financing of terrorism (‘CFT’) as a key priority. Bahrain is part of the Financial Action Task Force (‘FATF’) through the full membership of the Gulf Cooperation Council in the FATF, and is committed to the implementation of all international standards in this area. Bahrain is also a founding member of the regional MENA-FATF, and hosts its secretariat.

In order to ensure effective compliance with relevant standards and to preserve Bahrain’s strong reputation as a well-regulated financial centre, the CBB maintains a Compliance Directorate, which is tasked with leading the CBB’s AML/CFT efforts.

The Compliance Directorate

The activities of the Compliance Directorate include:

• Undertaking AML/CFT examinations of licensees.

• Analysing financial crime trends and developments.

• Promoting awareness of financial crime risks.

• Issuing AML/CFT regulations and guidance.

• Disseminating AML/CFT ‘black-lists’.

• Disseminating fraud and other investor alerts.

The Compliance Directorate may be contacted by E-mail, telephone (+973 17 547 956) or by fax (+973 17 535 673).

1.Decree Law No. 4 of 2001 with Respect to the Prevention and Prohibition of the Laundering of MoneyEnglish / Arabic

2.Decree Law No. 54 of 2006 with Respect to Amending Certain Provisions of Legislative Decree No. 4 of 2001 with Respect to the Prevention and Prohibition of the Laundering of MoneyEnglish / Arabic

3.Decree Law no 25 of 2013 amending certain provisions of legislative decree law no 4 of 2001 with Respect to the Prevention and Prohibition of the Laundering of MoneyEnglish

4.Decree Law no 36 of 2017 amending article 3 of decree law no 4 of 2001 with Respect to the Prevention and Prohibition of the Laundering of MoneyEnglish

5.Decree Law No. 58 of 2006 with Respect to the Protection of Society from Terrorism ActivitiesEnglish

More detailed requirements implementing the above laws with respect to financial institutions are contained in the Financial Crime Module of each relevant Rulebook Volume.

AML/CFT Committee

The AML/CFT National Policy Committee (NPC) was established in accordance with Decree Law No. (4) of 2001. The committee is chaired by the Executive Director of Financial Institutions Supervision at the Central Bank of Bahrain and is comprised of members from various national authorities including the Central Bank of Bahrain, Ministry of Interior, Ministry of Foreign Affairs, Public Prosecution, Ministry of Industry, Commerce, and Tourism, Survey and Land Registration Bureau Ministry of Finance, Ministry of Justice and Islamic Affairs, Ministry of Labor and Social Development, National Security Authority, Ministry of Youth and Sports Affair, Legislation and Legal Opinion Commission, and Custom Affairs. The relevant authorities are represented by senior level members such as undersecretaries and directors. As set out in Article (4) of Decree Law No. (4) of 2001, the responsibilities of the NPC include formulating AML policies and strategies, establishing general policies for combating Money Laundering, issuing guidelines on the reporting of suspicious transactions in co-ordination with relevant entities, studying any international and regional developments that would require updating current regulations, and coordinating with the relevant entities for the implementation of the applicable international conventions or treaties. Meetings of the committee are conducted on a regular basis where discussions over various Money Laundering issues are tackled and voted upon.

AML/CFT 'Black List'

The Government of Bahrain (‘GOB’) may from time to time designate certain individuals and organizations as being linked to the financing of terrorism, for instance when so designated by the United Nations. These names are circulated to the financial sector by the Central Bank of Bahrain.

AML/CFT Mutual Evaluation

Bahrain was previously assessed by the International Monetary Fund in 2005 for the country’s compliance with the FATF standards. The assessment was conducted in accordance to the 2004 FATF methodology. The report was approved by the IMF in January 2006. The same report was subsequently discussed and endorsed by the MENA-FATF in November 2006.

Subsequent to the updated FATF recommendations in 2012, an evaluation team from FATF/MENAFATF conducted a mutual evaluation on the Kingdom of Bahrain to assess the country’s AML/CFT legal framework and effectiveness of its systems and controls. The Mutual Evaluation was based on the FATF 2013 Methodology and discussed and approved by FATF in June 2018.

Since its creation by the G7 in 1989, the Financial Action Task Force (‘FATF’) has spearheaded the effort to adopt and implement measures designed to counter the use of the financial system by criminals. The FATF now includes 33 members, including the Gulf Cooperation Council (‘GCC’), which represents its six member states.

The FATF 40 Recommendations on money laundering and terrorism financing, and the financing of proliferation of weapons of mass destruction provide the most widely recognised standards in this area; they form the basis for the Government of Bahrain’s actions with respect to AML/CFT.

Exchange of Financial Information

Common Reporting Standard (CRS)

Common Reporting Standard (“CRS”) is a global standard for the Automatic Exchange of Financial Account Information that was developed by the Organization for Economic Cooperation and Development (“OECD”) in response to the G20 request. The aim of CRS is to allow tax authorities, annually, to obtain information on the financial assets held abroad by their residents, for tax purposes. The government of the Kingdom of Bahrain is among many countries across the globe that have committed to the CRS.

The Kingdom of Bahrain has chosen the Wider Approach reporting standard stipulating that all licensed financial institutions are required to perform customer due diligence procedures on all accounts held by accountholders resident for tax purposes.

The Convention on Mutual Administrative Assistance in Tax Matters as amended by the 2010 Protocol (“MAC”) and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (“CRS MCAA”) have been ratified as per law No. (13) and (14) of 2018.

For information on CRS compliance, kindly refer to the CRS and its Commentaries contained in the Standard for Automatic Exchange of Financial Account Information in Tax Matters (the “Standard”) approved by the Council of the OECD on 15th July 2014 (Link)

FATCA is a United States (“US”) legislation that primarily aims to prevent tax evasion by US taxpayers by using non-US financial institutions and offshore investment instruments.

The Intergovernmental Agreement (“IGA”) entitled, “Agreement between the Government of the United States of America and the Government of the Kingdom of Bahrain to Improve International Tax Compliance and to Implement FATCA” and its Annexures has been ratified as per Law No. (4) of 2018.

For information on FATCA compliance, please refer to IGA and its Annexures on the following link.

FATCA Competent Authority Arrangement

For the Competent Authority Arrangement Between The Competent Authorities Of The United States of America and The Kingdom Of Bahrain, please click here.

The OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“IF-BEPS”) project seeks to increase transparency and exchange of information in tax matters, as well as address weaknesses of the international tax system that create opportunities for BEPS. The initiative seeks to close gaps and eliminate mismatches in tax rules that allow artificial shift of profits to low or no-tax locations where there is little or no economic activity.

The BEPS package consists of reports on 15 actions, and sets out a variety of measures ranging from new minimum standards, the revision of existing standards, as well as common approaches which will facilitate the convergence of national practices, and guidance drawing on best practices.

As per the Cabinet Resolution No. 07–2456 on its session on 7th May 2018, the Cabinet approved the Kingdom’s ratification of the IF-BEPS.

The move is perceived to be in line with Kingdom of Bahrain’s keenness to affirm its full and permanent commitment to the highest degrees of transparency in the field of taxation, as well as to international cooperation in this regard, and desire to ensure that international companies do not evade the payment of their taxes.